Ministry of Law and Justice here on Tuesday legally endorsed the Federal Board of Revenue''s measures to impose capital gains tax (CGT) on sale of property, confirming that the federal government has the authority to collect gains on the sale of immovable property after the passage of 18th Amendment.
In this regard, the representative of the Law and Justice Division has given a detailed legal opinion to the newly elected Senate Standing Committee on Finance here on Tuesday. Senate Standing Committee on Finance has started review of the budget 2012-13 which met in the parliament house here on Tuesday. Chairperson Senator Mrs Nasreen Jalil presided over the meeting. In her opening remarks she said that despite the fact that the committee has many fresh members but there is a lot of pressure on everybody in view of current economic situation of the country. "It was expected that the ratio of direct taxes and indirect taxes would be corrected - besides more relief had been a general demand in the election year." "The pressure is from masses who had a lot of expectations in the federal budget - and we have to make recommendations accordingly," she added.
Senator Talha Mehmood, Senator Begum Kulsom Parveen, Senator Muhammad Humayun Khan Mandokhel and Senator Haji Adeel raised the issue and sought constitutional position on the proposed Capital Gains Tax (CGT) on sale of property. If the FBR and Law Division would provide the legal opinion, they would not oppose the proposed CGT on sale of property in view of Constitutional position.
Deputy Draftsman Ministry of Law and Justice confirmed before the committee that this proposal has been contained in the Finance Bill 2012 after obtaining legal opinion from Law Ministry. Aqil Usman, Member Legal, Federal Board of Revenue informed the committee that after obtaining the legal opinion from Ministry of Law and Justice, FBR has proposed in the Finance Bill 2012 to levy the CGT on the immovable assets. He explained the constitutional position to the committee that federal government can''t tax the value of the immovable assets, however, gains or profits arising out of its sale within two years is proposed to be taxed.
Member Legal further said the people involved in sale and purchase of property (property agents) are already paying income tax as income from business and normal rate is 25 percent to 30 percent. On the other hand, FBR has proposed 10 percent CGT would be applicable on sale of property within one year of the date of the acquisition of property; 5 percent CGT on sale of property within 2 years and no CGT applicable on sale of property beyond two years. Thus, there would be no capital gains tax on gains arising out of the sale of immovable property or immovable assets that would be sold after two years of purchase.
Senator Usman Saifullah Khan has appreciated the proposed measure of the CGT on immovable property and said that tax-to-GDP is very low in Pakistan and it could be improved by expanding the tax net. Senator Sughra Imam endorsed the 5 percent and 10 percent capital gains tax on immovable property. Senators also raised the issue of value on which the Capital Gains Tax would be assessed and said that properties worth millions are being registered as per Deputy Commissioner notified rates which are very low.
Deputy Draftsman, Ministry of Law and Justice informed the committee that the income tax law for the Gilgit Baltistan has been vetted by the Division and is also being applicable in the said area. On the same issue, Chief Income Tax Policy FBR stated that the FBR has drafted the Income Tax Law for the Gilgit Baltistan on the pattern of the Income Tax Ordinance 2001.
Members of the Committee also raised the issue of applicability of income tax laws in all parts of the country including AJ&K, Gilgit Baltistan, FATA and PATA. The officials of the FBR and finance ministry informed the committee that President has powers to extend the jurisdiction of any tax law in FATA, Governor Khyber Pakhtunkhawa has the powers to extend the tax laws in PATA, similarly, AJ&K Council and Gilgit Baltistan Council have the powers to allow applicability of Pakistan''s tax laws in their jurisdictions. Chairperson Nasreen Jalil was of the opinion that tax laws should be equally applicable in all parts of the country without any discrimination.